On 28 March 2023, The Pensions Regulator (TPR) published two sets of practical guidance – one aimed at trustees and the other at employers – to help improve equality, diversity and inclusion (EDI) on Trustee Boards.
In addition, the draft General Code makes reference to skills and experience diversity, particularly in the context of succession planning.
But for trustees who’ve made that important connection between board effectiveness and EDI there is an important extension and an elaboration to make to this picture.
When we hear the term ‘diversity’, our minds can go to a very specific place. Usually to the protected characteristics that make up the spectrum of demographic diversity – so commonly age, gender and ethnicity.
A useful mental device to bring clarity and breadth is to always think, on hearing the term “diversity”, of the three lenses of diversity:
They are each important. They each vary in terms of how visible they are, how they’re measured and how ‘gaps’ are mitigated. And they’re non-correlated, so solving one doesn’t automatically mean you’ve solved the others. Let’s examine each in a bit more detail.
Skills and experience diversity is the breadth of those skills and experiences that lend themselves to aspects of pension scheme operations. This might include skills and experiences related to the governing of a pension scheme – so for example around negotiation or leadership – or it might relate to specific areas of expertise – such as cyber, investments, operations, corporate finance or risk management. Skills and experiences are different to Trustee Knowledge and Understanding (‘TKU’). They also matter on a ‘group’ basis – so we should be interested in whether a whole board (or a sub-committee) has the relevant skills and experience represented, and accesses them, rather than what each individual trustee’s gaps are. Boards don’t need to be comprised of experts, but rather trustees with enough background and confidence to, for example, ensure sufficient focus and prioritisation, seek the right advice, ask the right questions, and make appropriate decisions, etc.
Skills and experience diversity can be measured via a simple self-assessment questionnaire, with a thoughtful tool being capable of collecting background commentary from trustees, carefully guiding an individual’s ratings, and establishing genuine differentiation of strengths and weaknesses across topics even where you have a strong board.
Demographic diversity looks at the full range of protected characteristics – so yes age, gender and ethnicity, but also socio-economic diversity, neurodiversity, sexual orientation, disability, religion and belief, education, etc. Though some aspects are relatively visible, others are not unless they’re offered up by the individual. And this is not an area where we should make assumptions. Achieving good demographic diversity can help a board understand and represent the interests, views and needs of a bigger proportion of their scheme’s membership, and support better debate, idea generation, problem solving and decision making.
Demographic diversity can also be measured via a simple questionnaire, though it’s important to make the answers to each question entirely optional, and to present results in such a way that individual responses are not connected and are non-attributable.
Behavioural or cognitive diversity looks at the way individuals think, behave and interact in a group and make decisions – their preferences, strengths and blind spots. Examining this sort of diversity (at anything other than a superficial level) requires the assistance of psychometric assessment models. They work in different ways, but a model we’ve used to good effect in this area is the Saville Wave™ Work Roles model which calls out preferences along eight dimensions, such as relator, assertor, innovator, analyst, supporter etc. Models like this are commonly used by corporate boards as well.
Here's the real magic in looking at the psychometric profile of the board: it’s having a qualified practitioner to draw out insights on the sorts of helpful (or otherwise) behaviours and tendencies that might be exhibited by a group with that distribution of preferences. Insights might be around willingness to engage in genuine debate (including being willing to go so far as to question and understand the reasons behind differing views); or they may be around the way the group make decisions (including what inputs they need in order to feel comfortable to make a decision); or around which areas the board defaults to spending most of its time on (and the areas that are consistently neglected).
The added bonus of undertaking activity to understand behavioural or cognitive diversity is the extra ‘social capital’ that can be created by a board going through the exercise of looking together at these important areas of understanding for? themselves and their colleagues. ‘Social capital’ is crucial for trust, collaboration and innovation, and stores of this have commonly become depleted amongst trustee boards with more virtual and hybrid meetings. But gosh that’s a topic for another day!
14% of schemes have yet to review skills and experience diversity
Our 2023 Governance Survey showed that schemes are getting to grips with the three lenses of diversity, but at different paces. Over two-thirds of schemes have already reviewed skills and experience diversity; half demographic diversity; and one third behavioural diversity. Conversely, nearly a third of schemes are planning to review behavioural diversity, a quarter are still planning to review demographic diversity, and 14% have yet, but are planning, to review skills and experience diversity.
Boards can improve their diversity through careful, thoughtful recruitment over time – either by improving the way they recruit or select member-nominated trustees or by engaging in conversation with the sponsor on the sorts of gaps the board is looking to fill. But when we think about our three lenses of diversity and the variety within each of those lenses, we are never going to solve all diversity gaps, even if we had a board of 25 people.
There’s also the problem of actually being able to recruit across all your requirements. (As a side note, I firmly believe that recruiting diverse candidates isn’t hopeless, even when you have a shrinking, ageing or largely demographically homogeneous member population: there’s no silver bullet, but there are a wide range of tweaks that can be made to a recruitment approach and how its communicated that together can make enough of a difference to have a genuine choice between diverse candidates. As a guiding principle, you must let the members you reach out to know that the role needs someone like them.)
But, still, recruitment isn’t and can’t be the only answer to having diverse inputs to improve your board’s effectiveness. Other supplementary mitigations include:
According to our 2023 Governance Survey, two thirds of schemes have taken at least one positive step to support trustee recruitment – examples include moving from election to selection, widening the eligible population, pipeline-building practices and reviewing communications. And many are planning or considering further change.
In addition, boards are reviewing their effectiveness more frequently, and are advancing from self-assessments to make greater use of independent reviews of board effectiveness. Our 2023 governance survey showed that 66% of schemes assess their effectiveness every year, with a third seeking external input at least every 2 or 3 years.
We’ve covered quite a lot of ground here. Indeed, our starting point was that there are more boards could and should be doing, in the name of effectiveness, in addition to what TPR’s recent guidance and the General Code already cover. But much of the activity here is not onerous and can be tackled sequentially.
Please contact your WTW consultant or Jenny Gibbons if you would like more information on: